US oil driving markets

The United States is becoming an increasingly prominent factor driving global energy markets, according to the newest annual review of the energy industry by BP plc.

With the continued development of unconventional resources in 2013, the United States experienced one of the largest annual increases in oil production in its history, according to the BP Statistical Review of World Energy 2014. The increase helped offset global supply disruptions to keep prices stable - albeit stable at historically higher prices.

Global energy consumption grew 2.3 percent last year. Even though growth accelerated over the previous year, it accelerated more slowly than the 10-year average, according to BP. Only in North America did the growth rate for energy consumption meet recent averages. In the European Union, consumption was at its lowest level since 1995.

Energy consumption generally follows economic activity, but the consumption accelerated last year despite a stagnant economic picture worldwide, according to the review. This is partially the result of a split: developed economics saw increased growth while developing economies saw a slowdown, according to BP group Chief Economist Christof Ruehl. Considered together, the slowdown of Chinese energy consumption and the growth of American oil production “may well be a harboring of bigger shifts to come, as China - hopefully successfully - normalizes its economy away from this energy intensive mode of mass production, towards more services, and as the U.S. starts to reap the benefits of its domestic energy revolution, as people call it,” Ruehl said.

U.S. oil thriving

Oil is “the most lively of all the fuel markets,” Ruehl said.

“When you look at this market, it actually looks remarkably stable. Prices have been very high … but very, very stable. In terms of the annual price volatility, this is the most stable oil price we have seen since the 1970s,” Ruehl said. The stability is the result of two opposing forces: unconventional production in the United States is increasing supplies while political instability in North Africa and the Middle East is constraining supplies.

In 2013, U.S. oil production increased by 1.1 million barrels per day. “That is, for the second year in a row, the highest increase in oil production in the history of U.S. oil markets,” Ruehl said. But, over the past three years, some 3 million cumulative barrels per day have been kept off the market by supply disruptions from conflicts in Libya, Syria and Sudan, sanctions against Iran and outages in Nigeria among other situations.

“So if you add up these supply disruptions on the one hand, and the production increases in the U.S. on the other hand, you derive a picture where the two balance themselves almost perfectly. And that is the underlying reason for the stable prices,” Ruehl said.

Oil consumption also grew in the United States last year. The 400,000 barrel-per-day increase in domestic consumption topped Chinese growth for the first time since 1999.

Gas growth slow

The oddities of the oil market also appear to be influencing the natural gas market.

Gas “took a breather” last year, according to Ruehl. Consumption grew 1.4 percent and production grew 1.1 percent, which are both below the 10-year average of 2.6 percent.

Ruehl cited two reasons for the slowdown.

“Number one: we are still in a phase where there is very little LNG coming on. And number two: we have seen a growth in shale gas production in the U.S. slowing down, and prime reason for this is the still very big price differential between oil and gas.”

Those lower prices contributed to above average consumption in North America, which grew 2.7 percent last year and was the only region to experience growth for gas.

The United States remains the leading producer of gas, but Russia and China recorded greater growth last year. Nigeria, India and Norway recorded the largest declines.

With the growth in fossil fuel consumption, carbon dioxide emissions have also increased. But, the increased presence of renewable energy last year helped offset the strong growth in coal consumption, which in turn slowed the growth in emissions.

As such, consumption of non-fossil fuels matched consumption of natural gas in both Europe and Asia (although, Ruehl noted, in Asia this was largely the result of the heavy reliance on coal and the limited use of renewable fuels, hydroelectric, nuclear and gas).

Coal grew faster than oil or gas last year, as developing economies continued to rely on it to fuel their growth. China and India accounted for 88 percent of the global coal growth.